Build A Successful Investment Policy Statement for Your Nonprofit Organization by Frank Sutton, CFA An investment policy statement (IPS) provides a roadmap for managing your organization’s investments and spending over time. When carefully crafted, an IPS can help you define your investment philosophy and process. Why do I need an IPS? The overriding reason for having an IPS is that it is a plan that can be followed in all market environments. The IPS is essentially a blueprint for portfolio management. This document promotes investment strategy continuity over time even as board members may rotate on and off the board. A well designed IPS will include the fundamental objectives of your organization’s portfolio. This should include guidelines to help ensure your organization’s investments are managed consistently with your short- and long-term goals and objectives. By memorializing a portfolio management framework, the IPS enables your board members and investment advisors to carry out their duties with confidence. For example, it will help board members fulfill their fiduciary responsibilities such as the “duty of care” provision of the Uniform Prudent Management of Institutional Funds Act.
Another great reason for having an IPS is that it demonstrates to donors that the funds they contribute are being prudently managed.
What are Key Elements of an IPS? Every IPS should include a few important components. A Statement of Purpose is often the first section of the statement. It should be a clear and concise description of your organization and its mission, and how the portfolio supports that mission. This overview can set the tone for the specifics within the body of the document. A section covering Delegation of Authority should describe the roles and responsibilities of board members, committees, staff, custodian and outside advisors. The board of directors typically has final authority but may delegate all or part of its responsibility. The IPS should provide accountability for decision making at all levels, including approval of changes to the IPS itself. The IPS should also communicate the Investment Philosophy of your organization. You may have a specific, written philosophy, or it may be that the overall IPS conveys the collective attitude of board members toward investment management issues.
MAY/JUNE 2021 AZ CPA
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